[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Notices]
[Pages 53369-53371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27046]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39200; File No. SR-NYSE-97-25]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., To Amend Its Rule 382 
Relating to Carrying Agreements

October 3, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 16, 1997, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or

[[Page 53370]]

``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Exchange Rule 382, Carrying 
Agreements to better monitor the activities of introducing firms that 
are parties to carrying agreements. The text of the proposed rule 
change is available at the Office of the Secretary, the NYSE, and at 
the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of the proposed rule change is to revise Exchange Rule 
382 to enhance the ability of the Exchange and other securities self-
regulatory organizations (``SROs'') to monitor the activities of 
introducing firms that are parties to carrying agreements. Exchange 
Rule 382 governs the contractual agreements, known as ``carrying 
agreements,'' between a ``carrying'' and an ``introducing'' firm, that 
allocate certain functions and responsibilities associated with the 
carrying of, and transactions in, customer accounts. In ``carrying'' 
the accounts of others, carrying firms provide an introducing firm with 
a variety of services for the accounts that are ``introduced'' to them 
on behalf of customers, pursuant to the carrying agreement.
    Under Rule 382, all carrying agreements must be filed with and 
approved by the Exchange if either party to the agreement is a member 
of the Exchange. Rule 382 also requires, with respect to all ``fully 
disclosed'' arrangements, that the carrying agreement specifically 
identify and allocate between the carrying and introducing organization 
certain key enumerated functions and responsibilities. To address 
recent concerns regarding the ability of self-regulatory organizations 
to monitor the activities of introducing firms, the Exchange believes 
the proposed amendments will increase SROs' ability to monitor the 
activities of introducing firms that are party to carrying 
arrangements. Generally, the proposed amendments will provide for 
increased monitoring of customer complaints regarding introducing 
organizations, require specific procedures for introducing 
organizations requesting reports offered by carrying organizations, and 
address procedures and responsibility for introducing organizations 
that are permitted to issue negotiable instruments of the carrying 
organizations.
    Specifically, the rule amendments will require carrying 
organizations to furnish promptly any written customer complaint it 
receives regarding the introducing firm to the introducing organization 
and such firm's Designated Examining Authority (``DEA''). In addition, 
the proposal would require that the customer who submitted the written 
complaint be notified in writing by the carrying organization that the 
complaint was received, that it was furnished to the introducing firm 
and the DEA, and that the customer has the right, at the customer's 
discretion, to transfer the account to another broker-dealer.
    The proposed amendment also requires the carrying organization to 
furnish, at the commencement of the agreement and annually thereafter, 
to each of its introducing organizations, a list of all reports (e.g., 
exception type reports) that it offers to the introducing firm in order 
to assist the introducer in supervising and monitoring customer 
accounts. The proposal requires introducing firms to notify the 
carrying firm of those specific reports on the list that should be 
furnished to it to supervise and monitor customer accounts.
    In addition, the carrying organization will be required to retain 
and preserve copies of the specific reports requested by and/or 
supplied to the introducing firm pursuant to Exchange Rule 440 or have 
the capability to: (1) Recreate copies of reports furnished, or (2) 
provide the report format and data elements provided in the original 
reports. The proposal further requires the carrying firm to provide 
written notice, on an annual basis within 30 days of July 1 of each 
year, to the Chief Executive Officer and Compliance Officer of the 
introducing firm, of the list of reports offered to the introducer and 
specify those reports actually requested or supplied as of the report 
date. A copy of this written notice must also be provided to the 
introducer's DEA.
    The amended rule also addresses those agreements that allow 
introducing organizations to issue negotiable instruments (e.g., 
checks) to their customers, for which the carrying organization is the 
maker or drawer. The proposed rule provides that the introducing 
organization must represent to the carrying organization that it has 
supervisory procedures in place, which it enforces and which are 
satisfactory to the carrying organization, with respect to the issuance 
of such instruments.
    The Exchange believes that the proposed amendments to Rule 382 will 
clarify the relationship and responsibilities between organizations 
involved in carrying arrangements while also recognizing the nature of 
the contractual relationship between carrying firms and introducing 
firms. The Exchange further believes that provisions requiring 
furnishing of customer complaints and lists of reports submitted by and 
furnished to introducing organizations will enhance the ability of the 
Exchange and other SROs to monitor the activities of such entities. In 
addition, the Exchange believes that the requirement that carrying 
organizations maintain and be prepared to furnish copies of exception 
reports or to recreate the report or provide report format/data fields 
will ensure that appropriate records are available that detail the 
information actually provided to the introducing organization to 
monitor its customer accounts.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b)(5) of the Act which \3\ requires that 
the rules of the Exchange be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest, in that it establishes standards to which members and 
member organizations that are parties to carrying agreements must 
adhere while providing customer protection through appropriate

[[Page 53371]]

disclosures and implementation of specific procedures and controls.
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    \3\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal does not impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants or Others

    Comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve such proposed rule change, or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, D.C. 20549. 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission and all written communications relating to the proposed 
rule change that are filed with the Commission and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld from 
the public in accordance with the provisions of 5 U.S.C. 552, will be 
available for inspection and copying at the Commissions' Public 
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. 
Copies of such filing will also be available for inspection and copying 
at the principal office of the above-mentioned self-regulatory 
organization. All submissions should refer to File Number SR-NYSE-97-25 
and should be submitted by November 3, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-27046 Filed 10-10-97; 8:45 am]
BILLING CODE 8010-01-M